Lenders’ actions show they think properties are not worth pursuing.
Nobody is sure exactly how many bank walkaways are occurring. For various reasons, they can’t be identified in searches of public real estate and court data without individually pulling case files, experts say.
But nobody questions that they are on the increase.
David Rothstein, a researcher with Policy Matters Ohio, summarized the way they occur like this:
• The lender files a foreclosure, gets the foreclosure judgment in court, takes the property to sheriff’s auction but doesn’t bid on it if no one else does.
• The lender files as above, gets the judgment, sets the sheriff’s auction, then cancels the sale at the last minute.
• The lender files as above but then never requests a sheriff’s auction.
• The lender doesn’t even bother to file foreclosure.
All of these actions leave the foreclosed property in the hands of the original owner who, in many cases, has moved out and is unaware the lender hasn’t taken it.
One indicator of the trend in walkaways is the gap between the number of foreclosure filings by lenders and the number of properties actually sold at sheriff’s auction.
A Dayton Daily News analysis of Montgomery County records found that, through September, foreclosure filings are on a pace this year to decrease by 8 percent. Meanwhile, foreclosed properties sold at sheriff’s sale will be down more than 21 percent. Over the three years an average of 2,500 foreclosure filings have not made it to sale at auction.
A foreclosure filing may not make it to auction for a number of reasons, including owners coming up with the money or lenders working out deals with them. But, Rothstein said, the growing difference between filings and sales suggests walkaways are playing an increasing role.
“When we look at the numbers, it’s not like thousands of people are getting loan modifications that would lift them out of the foreclosure process,” he said. “So what’s happening to those other properties?”
Another indicator is the falling number of properties that banks are repossessing, said Daren Blomquist, a spokesman for RealtyTrac, Inc. Data from RealtyTrac shows that bank repossessions, called REOs, have been steadily declining in Montgomery County over the last three years. The 2009 monthly average for repossessions is only 43 percent of what it was in 2007, a newspaper analysis of the data show.
“There’s something happening once the properties enter foreclosure that is at the very least slowing down the process,” Blomquist said. “Maybe not to that (Montgomery County’s) extreme, but we’re seeing a similar pattern nationwide.”
Another indicator is the number of canceled sheriff’s sales, said Chuck Rodersheimer, a Dayton attorney who specializes in bankruptcy and foreclosure cases. ZIP codes like 45405 and 45406 northwest of downtown Dayton illustrate the problem, he said.
A newspaper analysis of sheriff’s sale data found that 45406 had 721 cancellations since 2006, by far the most of any county ZIP code. The 45405 ZIP was second with 594 cancellations.
Some of those neighborhoods have a lot of old, deteriorating housing stock, many of which are for sale or vacant, and accumulating unpaid taxes. The cost to the bank for taking responsibility for those properties, he said, is going to far outstrip anything they could hope to get out of selling the homes.
The sheriff’s sale cancellations in those neighborhoods, Rodersheimer said, are unlikely to be a result of negotiations between the owner and lender. “It’s going to be the fact that the bank didn’t want the property any more.”
In some instances, lenders don’t even bother to file a foreclosure. Figures by RealtyTrac released this week show foreclosure filings in the greater Dayton area are down almost 21 percent.
John Carter, housing inspector with the city of Dayton, finds the decline in foreclosures “very scary,” because houses are continuing to go vacant.
For every 100 houses that he orders boarded up, he said, 40 to 50 properties have a mortgage but no foreclosure filed. When he contacts the banks, they sometimes tell him they have no plans to foreclose.
“That makes it look like the foreclosure numbers are going down, but in actuality the banks are not even starting foreclosure,” Carter said. “So there’s no number to track now.”
Shadow Market Delays Recovery, Helps Defiant Homeowners
It’s been almost a year since Horatio Bernard effectively lost his Baltimore row house to foreclosure and roughly 15 months since he last made a payment on his primary mortgage.
And yet to his amazement and those following his story, Bernard continues living in the home with his ailing mother without any sign of an eviction notice or word from his lender, in this case JP Morgan Chase and then US Bank.
“I haven’t paid a dime,” Bernard told me, sounding gleeful over the phone.…
There’s even a chance Bernard could get to stay in his home a lot longer. That’s because like hundreds of thousands of other homeowners in America these days, Bernard falls into what real estate experts call a shadow market, the growing backlog of foreclosures and bank-owned properties yet to reach real estate markets.
For various reasons, banks have slowed down the foreclosure process causing a reprieve for homeowners like Bernard while at the same time building a swell of foreclosed homes delayed from hitting the market. If they were to flood real estate markets at once, banks would suffer under a glut of inventory drawing down overall prices. So the banks have held back, in effect drawing out the nation’s recovery.
The shadow market today – those in distress or in some stage of foreclosure — represents roughly 14 percent of existing mortgages, says Rick Sharga, senior vice president of RealtyTrac, which compiles nationwide data on foreclosures.
“Right now what we’re seeing is delays in the entire process,” Sharga said. “It started in the fourth quarter of last year where we saw a spike in delinquencies that didn’t match a corresponding spike in foreclosures. What that suggested to us is it was taking the banks longer, for whatever reason, to execute on the foreclosure process. So we’re getting a buildup of properties that normally would have been in foreclosure but weren’t. That has continued to escalate. We’re now at record levels of delinquencies. Probably 10 percent of active mortgages are delinquent, and another 4 percent are in foreclosure.”
http://www.miller-mccune.com/business_economics/shadow-market-delays-recovery-helps-defiant-homeowners-1558
[...] October 27, 2009 by John before reading this article read this: Drop in Foreclosures Called “Very Scary” [...]